US imports to keep driving global shipping imbalance
US imports have driven the global container shipping chaos, having grown 10 percent yearly since 2019 while other trades saw moderate gains in comparison. Low inventories, a strong US economy, and shippers not wanting stockouts or depleted shelves make the demand outlook strong until at least early 2022.
Alan Murphy, chief executive of Sea-Intelligence Maritime Analysis, said that the crunch in container ship supply is exclusively the result of North American demand. Since September 2020, North America alone has added about 500,000 TEU of new demand monthly over the same level seen in 2019, Murphy said, citing data from Container Trades Statistics (CTS).
While global container ship demand through May 2021 is flat relative to 2019, North American demand has grown 10 percent on an annualized basis since that time, Murphy said.
“We are not seeing a global demand boom, we are seeing a North American demand boom,” Murphy said during the recent JOC.com Midyear Container Outlook. “That’s really the challenge because we are not used to this kind of growth.”
That growth has been felt most acutely in the trans-Pacific. From June 2020 through May 2021, monthly import TEU from greater China and Southeast Asia into the US West Coast averaged 29 percent higher than the comparable month in 2019, CTS data show.
Much of that growth has come as a result of the COVID-19 pandemic. Consumer spending on durable goods through May 2021 is running 25 percent higher than 2019 on an annualized basis, Murphy said, citing data from the US Bureau of Economic Analysis.
With pandemic stimulus measures such as enhanced unemployment benefits still available to many Americans and the COVID-19 lockdown diverting spending away from services, Murphy said there is no end in sight for growth in North American container ship demand.
“The caricature of someone laying at home on the couch and ordering stuff off Amazon is not entirely incorrect,” Murphy said. “There has been a massive boom in durable goods purchases.”
In the wake of the massive demand spike, Murphy said that US retailers will need to build up inventories to levels well above what they had in 2019.
Many companies are likewise signaling to investors that there appears to be no easing in US consumer demand and that they will have to keep up pressure on ocean carriers to restock depleted stores.
Inventory build to last through 2022
Helen of Troy Limited, which owns a variety of houseware brands, nearly doubled its inventory in the 2021 first fiscal quarter from a year ago. CEO Julien Mininberg said in a statement with the company’s earnings release the move was necessary to “better manage the current period of inflation and global supply chain disruption.”
Michel Vermette, CEO of Armstrong Flooring, said his company is also looking to boost inventory to keep ahead of US consumer demand.
“We increased our safety stock in an effort to combat the considerably longer lead times in the industry, raising sourced goods safety stock from 16 weeks to 28 weeks in many circumstances,” Vermette said during a July 21 earnings call with analysts.
Vermette added Armstrong is also looking to decrease the risk of any supply chain upsets in China and South Korea by sourcing from Vietnam and Malaysia.
American Outdoor Brands ended its fiscal 2021 year with inventories up 23 percent from last year. CFO Andy Fulmer told analysts that inventories would have been higher except “supply chain constraints and port congestion hampered our ability to build inventory to our preferred levels.”
“That said, our team is focused on overcoming these hurdles as we work to build up our inventories in fiscal 2022 in support of new product launches and to increase safety stock levels to mitigate these risks,” Fulmer added.
Canadian National Railway Vice President Keith Reardon said the need for inventory restocking should help drive the railroad’s business through next year.
“When we talk to our customers that are bringing products from overseas into North America, they see this continuing on well into 2022,” Reardon said during a July 20 call with analysts. “I think this is going to be the same volumes all the time, making sure that supply chains are filled.”
Typhoon could continue to disrupt Shanghai ports
City’s airports reported to have re-opened
Typhoon In-Fa, which slammed into eastern China last weekend, prompting local authorities to evacuate more than 100,000 people and shut schools, markets and businesses, could continue to impact ocean and air freight flows in the Shanghai region in the coming days.
In its latest weekly supply chain weather forecast, issued yesterday, Everstream Analytics said that although the tropical storm’s winds have slowed to 40 mph, heavy rainfall up to 20 inches “threatens to put some assets at high risk with severe flooding, including Shanghai Pudong Airport and the ports of Ningbo, Shanghai, Changzhou, and Nanjing.”
It continued:“Everstream experts expect this to continue through the middle portion of the week as In-Fa slowly moves northward across portions of east-central China. Transportation disruptions will be moderate to significant due to damaging winds, storm surge, high seas, and flooding. Infrastructure damage is possible. Supply chains should monitor the situation closely and take preparatory action for any locations within the zone,” it added.
Bloomberg News reported yesterday that the storm had forced “some of the world’s biggest shipping ports” to halt operations until at least Tuesday (today).”
It said all of Shanghai’s ports and some in neighbouring regions remain shut after closing over the weekend due to the extreme weather, “according to people familiar with the situation.”
The idled ports include Yangshan, part of the world’s biggest cluster of container terminals, which sits offshore to the south of Shanghai.
Yangshan port evacuated hundreds of vessels, including all large container ships, as wind speeds off the coast reached up to 102 kilometers per hour (63 mph) over the weekend, Xinhua News Agency reported, citing the port’s bureau of maritime affairs.
By late Monday afternoon, Typhoon In-Fa was pushing northwest and heading for Jiangsu province.
Shanghai’s two major airports and some subway lines and high-speed rail service began to re-open yesterday afternoon.
Meanwhile, in Japan, Tropical Storm Nepartak may bring some minor disruptions to the area this week between 26-28 July, Everstream Analytics noted. “Although the landfall location remains uncertain at this time, Tokyo is within the potential track of the storm, which could result in some minor impacts to business operations and transportation as well as impacting logistics at the Olympics.”
LA-LB terminals sound congestion alarm well ahead of peak season
Bill Mongelluzzo, Senior Editor
Terminal operators in the ports of Los Angeles and Long Beach sounded the alarm this week that they are already beginning to experience the vessel bunching, chassis shortages, and excessive container dwell times seen during the 2020 peak season last fall.
Vessels have begun stacking up outside the busiest US port complex as ships delayed during the shutdown of Yantian in South China began to arrive in Southern California at the same time as ships from new trans-Pacific services, strings diverted from Oakland, and additional extra-loader vessels call.
There were 26 container ships waiting at anchor for berthing space at Los Angeles and Long Beach terminals on Tuesday, according to the Marine Exchange of Southern California. The number of vessels at anchor peaked at 40 in February, but decreased steadily in March and April, and had been hovering in the midteens until last week.
The sudden torrent of ship arrivals comes on the back of imports through Los Angeles-Long Beach that spiked 41.1 percent year over year in the first six months of 2021, according to PIERS, a JOC.com sister product within IHS Markit. From the beginning of the US economic rebound from initial COVID-19 lockdowns in July 2020 through June 2021, terminals in Los Angeles and Long Beach have handled an average of 855,411 TEU per month in laden imports. To put that in perspective, imports through the port complex averaged 697,892 TEU in pre-pandemic 2019 and only eclipsed 800,000 TEU in a single month once that year.
Alan McCorkle, president of Yusen Terminals in Los Angeles, cautioned that terminals are beginning to feel the strain again of record-setting import volumes. “The cargo is moving. It hasn’t come to a stop, but it’s starting to move more slowly,” he told JOC.com.
Terminals are rapidly filling to capacity, in part because of excessive dwell times for both local delivery containers and rail containers that are awaiting sufficient trains and rail cars to move those containers from Southern California to the eastern half of the country. Both Union Pacific Railroad and BNSF Railway have been forced to meter intermodal shipments from Southern California due to congestion at inland terminals, particularly in the Chicago area.
The average dwell time for local delivery containers in Los Angeles and Long Beach terminals rose to 4.76 days in June from 3.96 days in May, according to the Pacific Merchant Shipping Association (PMSA), which represents terminal operators on the West Coast. Average rail container dwells increased to 11.8 days from the “already high” 10.5 days the previous month, PMSA said in a statement.
Terminal operators tell JOC.com container dwell times have continued to rise in July. “If the import dwell doesn’t improve, the container yards will stay congested,” said Dan Bergman, CEO of TraPac in Los Angeles.